In a letter to Congress on Wednesday, Secretary of the Treasury Tim Geithner declared that the U.S. will hit the debt ceiling by Monday. Geithner and leading economists have long predicted that the debt ceiling would be reached by the end of December.
In identical letters sent to each House of Congress, Geithner wrote,
“I am writing to inform you that the statutory debt limit will be reached on December 31, 2012, and to notify you that the Treasury Department will shortly begin taking certain extraordinary measures authorized by law to temporarily postpone the date that the United States would otherwise default on its legal obligations.”
Congress is facing two unique, yet linked, challenges to fiscal stability. While Republicans wrangle with Democrats who have not put much on the table in terms of the much-needed spending cuts to reduce the deficit, Republicans have found themselves at odds with each other as well.
Moderates within the GOP, such as Speaker of the House John Boehner, have played hardball with conservative leaders to try and force a compromised deal. Ultimately, the effort failed and has left a bad taste in the mouth of many Republicans who feel not only that moderates are caving on essential Republican principles of lower taxation, but also feel that the Speaker did too much arm-twisting to create the deal in the first place.
In addition to the almost-certainly doomed fiscal cliff negotiations, Congress must contend with the looming debt ceiling crisis as America is about to bump up against the debt ceiling which was put in place to limit runaway borrowing and the associated runaway spending.
Democrats and Republicans last sparred over the debt ceiling in 2011, when Republicans allowed a last-minute raising of the debt ceiling to avoid default on payments. Still, America’s credit rating was lowered due to the turmoil.
In his letter, Geithner articulated that the “extraordinary measures” would provide about $200 billion in room before we hit the debt ceiling, but with the economic uncertainty, we cannot be sure how much time that would give lawmakers to craft a solution. He wrote,
“These extraordinary measures, which are explained in detail in an appendix to this letter, can create approximately $200 billion in headroom under the debt limit. Under normal circumstances, that amount of headroom would last approximately two months. However, given the significant uncertainty that now exists with regard to unresolved tax and spending policies for 2013, it is not possible to predict the effective duration of these measures. At this time, the extent to which the upcoming tax filing season will be delayed as a result of these unresolved policy questions is also uncertain. If left unresolved, the expiring tax provisions and automatic spending cuts, as well as the attendant delays in filing of tax returns, would have the effect of adding some additional time to the duration of the extraordinary measures. Treasury will provide more guidance regarding the expected duration of these measures when the policy outlook becomes clearer.”
Some Republicans have hinted that they might use the debt ceiling as leverage to finally control deficit spending. However, like a parent lecturing a petulant child, President Obama stated earlier this month,
“I will not play that game because we’ve got to break that habit before it starts.”
While Republicans and Democrats point fingers as to who’s being the stubborn one, the fact remains that government has a serious spending problem and neither the Democrats nor the moderate leaders of the Republican Party seem willing to adequately address the $1.1 trillion deficit we are running. Interest on our outstanding and staggering principal coupled with government continually living being its means has created a national debt of nearly $16.4 trillion- a number that continues to grow with few signs of stopping until America can get back into the black.
With such uncertainty, it seems America needs more than a Band-Aid; it needs a long-term solution to unsound and unsustainable economic practices.